"Brait are back in the headlines with another massive dealBrait Acquisition Of A 90% Interest In New Look. They will pay GBP 780 million for a 90% stake, which they are buying from two private equity groups, the remaining 10% is held by management (great for incentives and aligning interests). At this mornings exchange rate that works out to R 14.55 billion, so not a small acquisition. It ranks as their second biggest investment after Steinhoff and R2.3 billion more than the recent deal Brait to acquire Virgin Active."
To market, to market to buy a fat pig. Where did that come from? The S&P 500 soared to an all time closing high last evening, lower than anticipated jobless claims and a very tame inflation report saw to that. The S&P closed at 2121.1, a percent better on the day, the nerds of Nasdaq were the big drivers there. It has been a strange time for equity markets, most of the real action happening in the fixed income markets, most specifically government bonds. I recall something from a few days ago when Mark Mobius (The Templeton chap) suggested that the internet had a lot to do with keeping a lid on inflation for longer, and that meant lower rates for longer. i.e. A new level which was lower than in the past. We sort of touched on it the other day, with that article that suggested that GDP does not take into account the astonishing surge in productivity as a result of technological innovation.
The stocks doing most of the heavy lifting were healthcare and technology. Those with less domestic exposure, the Dollar index peaked out above 100 mid March, since then it has been in steady decline, currently the Dollar index is at 93.41. What is it, the Dollar index? Reminder, it is the US Dollar measured against a basket of other currencies, the major ones globally. When the Bretton Woods system was thrown out, i.e. the US Dollar convertibility to gold was discarded as a good idea, a new idea was needed, hence the Dollar index. Since the advent of the Euro, it has become much easier. In other words, no French Franc, Italian Lira, German Mark, Spanish Peso, Dutch Guilder and so on. You get the picture. Mostly the basket is linked to the Euro, with a 57 odd percent weighting in that direction, nearly 14 to the Japanese Yen, 12 percent to the Pound Sterling, 9 percent to the Loonie (the Canadian currency), most of the balance being the Swiss Franc and the Swedish Krone.
The highest level was actually back in the mid 1980's when the Dollar index nearly reached 165. The lowest level was when commodity prices were steamrolling all penny pickers back in the first half of 2008, the Dollar index registered a low of 70 and some change. Currencies and their impact are something best left for determining relative strength of economies, or vice versa. Currencies are supposed to act as shock absorbers for global trade. A strong US Dollar reflects that it has had a better time of late, the economy has been stronger than their European counterparts. What has happened in the very short term however is that despite the Greek tragedy that is unfolding in front of our eyes, the rest of the European area is recovering and showing signs of putting in a base. That has supported the Euro in the short term. The US economy on the other hand has been showing the opposite over the last couple of months. Unstoppable for a while, and then the strong Dollar reigned things in.
So now every man and his dog is looking for companies with no US exposure and looking squarely at businesses with European and developing market influences. You know, the whole idea that you must either be following a strong Dollar or a weak Dollar. Never invest for what currency exposure a business is likely to incur in the short to medium term. Rather invest in businesses that geographically spread out and operate in quality mature or high growth markets. Most importantly, know that the citizens of that country want the service, want the product and continue to pay more for it. I am more interested in that, rather than worrying and getting anxious about the currency.
I know that here in South Africa it is one of the most talked about thing, where is the Rand trading to the Dollar, or Pound or Euro? And what it means, or what it is supposed to be a reflection of. The Rand is doing poorly as a result of the economy, look what x or y or z is doing. In truth, if you match the Dollar index over the "performance" of the Rand, you will see big similarities. The Dollar is the reserve currency of the world, and for the time being it will remain that way. Until it changes. I guess it will not. The Rand, the Rupee, the Rouble and the Real will for the most part, trade against what happens with the US Dollar.
Locally markets sold off, guess what, as a result of the stronger Rand. Less chance of a rate hike in the US as a result of benign inflation. That is not necessarily good for Rand hedge stocks, fabulous for the local inflation outlook. At the end of the session the local all share index was one third of a percent lower than where it had started the day.
Company corner
Aspen out with a very short announcement post market yesterday: "Shareholders are advised that Aspen is currently engaged in discussions regarding a possible acquisition of an infant nutritionals business." Seeing as the business is global in nature these days (see, currency volatility!), the company could be making this acquisition almost anywhere. Any guesses, Brazil perhaps? Or perhaps somewhere in Eastern Europe? South East Asia? And perhaps the existing business of one of the majors.
Brait are back in the headlines with another massive dealBrait Acquisition Of A 90% Interest In New Look. They will pay GBP 780 million for a 90% stake, which they are buying from two private equity groups, the remaining 10% is held by management (great for incentives and aligning interests). At this mornings exchange rate that works out to R 14.55 billion, so not a small acquisition. It ranks as their second biggest investment after Steinhoff and R2.3 billion more than the recent deal Brait to acquire Virgin Active.
I can't say that I have ever heard of New Look, but this one stat I think tells you everything you need to know, "approximately 43% of female adults and teenagers in the UK shopped at New Look at least once in 2014.". The market cap of New Look will be GBP 867 million and add to that GBP 1 billion in debt, which gives you an Enterprise value of GBP 1.9 billion. What do the earnings look like? At the end of 2014 they had EBITDA of GBP 211 million, which has been growing by double digits. They are then paying 9 times EV/EBITDA, which is fair given the high growth projections and the low interest rate environment.
Brait still have some cash left over from their sale of Pepkor to Steinhoff. Not enough though, so they will need some debt to do this transaction.
There was a Tiger Brands Limited - Trading Statement yesterday. The numbers are disappointing which were not helped by the weakening in the Nigerian Naira. "Headline earnings per share (HEPS) from continuing operations of 853 cents (2014: 856 cents) is in line with the previous period. Basic HEPS, which includes continuing and discontinued operations, of 853 cents (2014: 867 cents) is 2% lower than the same period last year." We will wait until next week to get a clearer view of the numbers, when the 6 month figures are released.
Things that we are reading
Remember yesterday when we were suggesting that the rest of Naspers was essentially for free? You were getting it for nothing? Flipkart stocking up on $550 million in fresh funds at $16 billion valuation. What has that got to do with Naspers? As you can see; a) Naspers is an investor here and b) as per the Naspers website Flipkart, Naspers owns 18.6 percent. If they maintain their investment stake in this round of funding, it is worth 35 billion Rand to Naspers. Makes you think.
I have seen more and more people questioning the idea of GDP measurement. Not my favourite source, yet one should and must read everything here: How GDP Metrics Distort Our View of the Economy. That paragraph makes you think: "For example, even if a ship - built at great expense - cruised without passengers, fished without success, or ferried without cargo; it nevertheless contributed to GDP. Profitable for investors or stranded in the sand; it added to GDP."
Following on from the Verizon buying Aol. comes a piece from Bloomberg: Why Did the CEO Buy That Company?
Harry Shearer quit after 26 seasons. He is not Alan Shearer's cousin finishing his days in the minor leagues. Rather, he was the voice of the rest of Springfield, the town where the Simpsons live. Rolling Stone has more: Excellent, Smithers: Harry Shearer's 10 Best 'Simpsons' Characters.
An interesting look at where locals and tourists take photos - Locals and Tourists. Ignoring the data implications, do the maps look a bit like art? Or is it just me?
This could be big for Netflix - Netflix is in talks to enter China's booming online video market
The thought that you can chat to someone anywhere in the world, who speaks just about any language, is very exciting - Skype Translator Preview Access Just Got Easier!. How many people would you be talking to though, who don't speak the same language as you?
Home again, home again, jiggety-jog. I am seeing a great deal of green around when I look at my markets page, the only red spot is resources.The Rand is below the R/$ 11.80 mark, which doesn't help resource companies who have their products priced in dollars. Brait are up just over a percent, which would indicate that the market thinks they paid the correct price for New Look.
Sent to you by the Vestacters, Sasha, Michael, Byron and Paul.
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